Audit Assessments To Be Suspended While Guidance Is Developed

The Internal Revenue Service (IRS) announced Thursday that it was suspending tax assessments that could be applied to aircraft management companies during federal excise tax (FET) audits, giving the agency time to work with industry on additional guidance. The move was welcomed by advocacy groups like the NBAA and NATA, which had lobbied the agency for the guidelines.

"We applaud this decision by the IRS as it addresses an issue that has caused unprecedented concern about potential retroactive and future tax liabilities throughout the business aviation community," said NBAA President and CEO Ed Bolen. "While the IRS will complete open audits, management companies can be secure in the fact that while additional guidance is developed, they will not face potentially crippling tax assessments as a result of those audits."
 
Last week, NBAA along with the National Air Transportation Association (NATA) met with senior leaders of the IRS Small Business/Self Employed Division to make the case for suspending FET audits dealing with aircraft management fees while the industry works with the IRS on developing additional guidance.
 
During the meeting, NBAA explained that previous guidance on FET applicable to management companies is unclear, and Members face uncertainty regarding their potential retroactive and future tax liability. Since the release of an audit technique guide in 2008 and a chief counsel advice memorandum in 2012, the IRS has become more aggressive in audits of aircraft management companies and charter operators. In particular, auditors were assessing FET on a wide variety of non-commercial flight operations, including flights by aircraft owners under Part 91 of the Federal Aviation Regulations in situations where services are provided by a management company.
 
"Since 2008, NBAA has been diligently working with senior officials at the IRS to address significant industry concerns about the applicability of FET to management companies," said Bolen. "Today's announcement that IRS will suspend any potential assessments on these audits until the work to develop formal guidance is complete frees hundreds of businesses from significant financial uncertainty."

"During this meeting, we strongly advocated our case and IRS officials did an outstanding job of tackling our concerns. They asked that we give them a week to review and they came back to us today with a decision to complete open audits but suspend any potential assessments until new guidance on the application of the FETs is developed," said NATA President and CEO Thomas L. Hendricks.

"We have come a long way with the IRS on this and we effectively reversed their views on how the industry functions and what the rules should be. I am very appreciative of the dialogue and professionalism these IRS officials displayed during this process. After sitting down with them face to face, I believe they have a better understanding of our industry. We have more to do and we will continue to work with the Service in a constructive and professional manner," concluded Hendricks.
 
Both organizations will continue its work with IRS and Treasury Department officials to develop clear and precise guidance as to the applicability of FET to aircraft management arrangements. The additional guidance is expected to be issued in the coming months.
 
"We sincerely appreciate the willingness of IRS to meet with NBAA and NATA on this issue and look forward to continuing our constructive dialogue in the coming months," Bolen said.

FMI: www.irs.gov, www.nbaa.org, www.nata.aero